Homo economicus: what is it and how does it explain human behavior?

Let's see what is the conception of human beings and their rationality known as homo economicus.

Although our species is Homo Sapiensin certain contexts a different expression has begun to be used.

We are going to know what the term homo economicus implies.in what field this concept was developed and what is the meaning of using it to refer to our species and the evolutionary moment in which we find ourselves. To do so, we will review everything related to this name.

What does homo economicus mean? History of the concept

The concept of homo economicus, originally written as homo œconomicus, means, in Latin, economic man. Obviously, it is an expression that unifies the genus of our own species, homo, from Homo sapiensincluding the term referring to the economy, since it arises from contexts such as game theory, where this homo economicus would be a totally rational being. arises from contexts such as game theory, where this homo economicus would be a totally rational being, whose actions always seek maximum benefit through minimum effort.who, with his actions, always seeks the maximum benefit through the minimum effort.

It is a term coined in the 19th century by John Stuart Mill, one of the referents of the classical economic school. Mill speaks of homo economicus in the context of political economy and how man makes his decisions in such a way that he evaluates the costs and benefits so that the latter are always as great as possible. However, although he gave it a name, in reality this concept already existed before.

The first economist to speak on the subject was none other than Adam Smith.In his seminal work, The Wealth of Nations, he already mentions the rationality of human beings in matters that concern our behavior in an economic way and how we try to achieve the most satisfactory result in exchange for the least loss of resources. Therefore, we could affirm that the concept of homo economicus was actually born in 1776.

Going deeper into this question and returning to J. S. Mill, this author states that we should not confuse the actions of people who, in the exercise of their profession, give the possibility to other people to obtain products or services, with a mere act of kindness. In this sense, the fact that a craftsman provides us with clothes or that a doctor treats us and cures us does not mean that they are good by nature, but that they are seeking a benefit.

In fact, this statement connects with the writings of a much older author, one of the most important philosophers in history: Aristotle.. Almost 4 centuries before Christ, this Greek philosopher had already realized that it was natural for men to have an interest in obtaining money, among other things, because thanks to it and the individual property derived from it, they had the ability to help their loved ones, such as their own family or friends.

As we can see, the idea of the concept of homo economicus had already existed for a long time, but it was with the arrival of the 19th century when neoclassical economists put it into a scientific form, that is, through mathematical models that would explain and predict this very human form of behavior. Authors such as William Stanley Jevons, Marie-Esprit-Léon Walras, Francis Ysidro Edgeworth or Vilfredo Federico Damaso Pareto stand out.

Already in the twentieth century, the economist Lionel Charles Robbins created the theory of rational choicean approach that crystallized the essence of homo economicus and provides the final definition: the man whose behavior is moved by reasoning, taking into account his own interests, among which is the desire to obtain benefits (money or profits of some kind).

The homo economicus model

After the historical journey we have made, we now know in depth the meaning of homo economicus.. We have seen that the essence underlying this term had already been the subject of thought since antiquity. However, it has been in recent history (19th and 20th centuries) that it has finally taken shape in mathematical and, more specifically, economic models.

According to the approaches of the authors who work with the term, they always establish the premise that homo economicus will try to achieve the highest possible welfare, always calibrating both the opportunities at his disposal and those difficulties that are given by the environment in which he finds himself, including the administrations that economically govern the system.

As we anticipated in the previous point, this behavior must be rational, since this is how the individual manages to optimize the attainment of welfare (he will achieve the maximum and at the same time try to spend the least part of the resources at his disposal). Rationality, therefore, will be limited to the function of achieving the best result, but this does not mean that the goal of the individual will be the same as that of the individual.but this does not mean that the end sought is rational in itself.

It is important to make this distinction, since otherwise we would be affirming that homo economicus will always know in some way what objectives he should pursue in terms of how beneficial they will be for him in the long term, when it is evident that on many occasions there is no rational way to reach this conclusion because we do not have sufficient information.

Limitations of this concept

Although the concept of homo economicus has had a long history and we have even seen that historically this idea was mentioned many centuries ago, it is a model that has certain limitations and this has led it to be the target of various criticisms by authors who reject the foundations of this model, either totally or partially. Let us look at some of them.

Criticism from anthropology

One of the most important criticisms comes from the field of anthropology. Authors who study both this discipline and economics are in a position to make an important critique of the concept of homo economicus. For them, a fundamental issue that has not been taken into account is that the individual's decisions vary significantly according to the society in which he lives and therefore according to the values (also economic and social) in which he lives. (also economic and social) in which he has been raised and which he considers as his own.

This is the position of authors such as Karl Polanyi, Maurice Godelier, Marshall Sahlins or Marcel Mauss, all of them anthropologists and economists who give the example of more traditional cultures in which all decisions of an economic nature are taken, not according to the benefit obtained by the individual, but on the principle of reciprocity between both parties. In other words, the aim is for both parties to achieve an equivalent benefit.

2. Criticism from the Austrian school

Another of the main criticisms of the homo economicus model comes in this case from another economic school, the Austrian school. They put on the table the question of the supposed omniscience of the individual, who, according to the approach we saw earlier, would always know which option would provide him with the greatest benefit.

It is evident that this is not always the case and that It is clear that this is not always the case and that we rarely have complete knowledge of all the repercussions of an action. Therefore, to state that the subject will always make the decision that provides the greatest profit would be too naïve and would also have a significant bias.

It is therefore essential to assess at all times the information available to the individual in order to know the basis for his behavior.

3. Criticism from psychology

Likewise, from the field of psychology, thoughts have arisen that question the validity of the homo economicus model. For example, the Israeli authors, Daniel Kahneman and Amos Tversky, experts in behavioral economics, state that this model leaves out a key issue for all decision making: the way in which the decision is presented to the individual..

For Tversky and Kahneman, almost as important as the benefit to be obtained, is the perception that the subject has about the possible losses and gains that he/she will have in the operation. They start from the assumption that people, as a general rule, prefer not to lose rather than to win. Therefore, the simple statement that we put to a person to choose between two options, can make him lean towards one or the other, according to our words.

Therefore, if we ask a person to choose between option A or option B, but in one case we emphasize the possibility of losing if he chooses A and in the other case the option of not winning if he chooses B, we can radically change his choice, we can make him change his choice radically, the options being identical in both cases..

This would be, therefore, the third major criticism that the homo economicus model has received and for which another series of models have been proposed to try to make up for these shortcomings and thus contemplate more variables.

Bibliographical references:

• Kahneman, D., Tversky, A. (2013). Prospect theory: An analysis of decision under risk. Handbook of the fundamentals of financial decision making.
• Henrich, J., Boyd, R., Bowles, S., Camerer, C., Fehr, E., Gintis, H., McElreath, R. (2001). In search of homo economicus: behavioral experiments in 15 small-scale societies. American Economic Association.
• Persky, J. (1995). The ethology of homo economicus. Journal of Economic Perspectives.
• Thaler, R.H. (2000). From homo economicus to homo sapiens. Journal of economic perspectives.